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Copyright ©Texas Education Agency, 2013. All rights reserved.
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Regulating the Securities Industry
Securities Act
of 1933
• “truth in securities” law
• Requires disclosure of information regarding
securities for sale
Securities
Exchange Act
of 1934
• Congress created Securities and Exchange
Commission
• Provides disciplinary action for individuals and
businesses selling securities
Investment
Company Act
of 1940
• Discloses information about mutual funds
• Regulates investment company structure
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Regulations (continued)
Investment
Advisers
Act of 1940
• Requires individuals who sell
securities to register with the SEC
SarbanesOxley Act
of 2002
• Created the “Public Company
Accounting Oversight Board”
• Mandates corporate responsibility
and ethics in accounting
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Regulations (continued)
Dodd-Frank Wall
Street Reform
and Consumer
Protection Act of
2010
Jumpstart Our
Business
Startups Act of
2012 (JOBS)
Copyright ©Texas Education Agency, 2013. All rights reserved.
• Improves regulatory oversight and
disclosure involving investing and
other consumer activities
• Makes it easier for small
businesses to raise capital
• Eases security regulations
regarding crowdfunding (a group of
individuals who provide financing
for entrepreneurs)
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Regulations (continued)
NASD
• Administered exams for securities
professionals
• Associated with National
Association of Securities Dealers
Automated Quotations (NASDAQ)
FINRA
• In 2007 NASD merged with the
NYSE (New York Stock Exchange)
to create FINRA
• Financial Industry Regulatory
Authority
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State Regulations
• Texas State Securities Board
– Texas Securities Act
• Provides that securities in Texas are registered
• Those who sell securities must also be registered
– Also provides investor education
• All states have securities regulations called “Blue
Sky Laws”
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Types of Fraud
• Affinity fraud
– Fraud that targets a group of people such as immigrants or
people of the same religious affiliation.
– The scammer tries to empathize with the particular group.
• Baby Boomer (Elderly) fraud
– These scammers target people of a certain age group who
may be facing financial challenges due to caring for elderly
parents.
– Scammers may also target people nearing or at retirement
who can use extra income.
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Types of Fraud (continued)
• Ponzi Scheme-also known as “Pyramid” scheme
– A plan that pays early investors with the contributions of
later investors with no real investment actually existing. The
only individuals making money are the initial few at the
expense of the later investors.
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9
Unethical Corporate Behavior and Fraud
• Well-known companies:
– Enron
• Hid losses and debt from the public which made the company
appear more profitable than it was, with the help of accounting
firm Arthur Andersen. Executives made millions from selling off
stock causing the demise of company pensions.
– WorldCom
• Company executives and accountants overstated assets among
other criminal corporate activity, which quickly led to bankruptcy
and losses for investors.
– Tyco
• Executives reportedly made loans from the company and never
repaid in addition to profiting from fraudulent securities sales.
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10
Formal Assessments
•
•
•
Regulator Acronym Assignment #1 - Students will select any two of the many
regulatory agencies they have learned about in this lesson. Then they will place the
initials of that organization on a posterboard or on the computer on a word processing
document if a lab is available, and for each letter they will create a phrase beginning
with that letter that describes an aspect of the agency and what it does.
Recognizing Fraud Assignment #2 – In pairs, students will select a brochure relating
to frauds and scams located on the North Carolina Secretary of State website. They
will create a presentation to present to the class using either presentation management
software, an online presentation program, or visuals such as posters and handouts
explaining the topic and suggested ways to avoid the unethical or illegal behavior.
Letter to the President Assignment #3 – Instruct students to pretend that they are
one of the employees of one of the companies that have been discussed regarding
fraud and unethical behavior. You have been hurt by the company’s actions so now
you are typing a letter, using proper personal-business letter format, that 1) states your
purpose for writing the letter, 2) explains in detail all of the ways the company has hurt
you and how you feel about its actions, and 3) a request for some sort of resolution that
the company can make to the people who were hurt.
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